Sustainability and Corporate Performance

Welcome to Global
Strategy and
Sustainability
Topic: Strategic Purpose –
Sustainability and Corporate Performance

Today’s Agenda
Quick Recap of Previous Week’s Topic (Corporate strategy)
A sustainable development
The three main pillars of sustainability
• Activity 1: Individual – CASE STUDY: Blackrock Investment
BREAK
Stakeholder management and corporate performance
• Activity 2 Group: Patagonia Clothing
Corporate governance and stakeholder alignment
• Activity 3: Group – CASE STUDY – Hilton Hotels
• Review of Apply Activity
• Recap, Q&A, Discussion
• Next steps

Previous Week Recap – Corporate strategy
Evaluate horizontal integration in the context of corporate
level strategy
Evaluate the role of vertical integration, outsourcing and
strategic alliances
Construct the case of how diversification can increase
profitability
Analyse the concepts of related and unrelated diversification

Today’s Learning Outcomes
Recognise the concept of sustainable development
Analyse the three main pillars of sustainability, profit people,
planet
Assess the relationship between stakeholder management
and corporate performance
Evaluate the various governance mechanisms used to align
stakeholder interests

Sustainable development
The world is much better off today than ever before
Conflicts are on decline
% population living in
extreme poverty
continues to decline
Life expectancy continues
to rise
Child mortality continues
to fall
More people are living in
democracies

Yet, human civilisation improvements have a price
A series of
global
problems have
emerged and
this time, of a
magnitude
never seen
before.
The World Economic Forum top 10 global risks
Corporate strategy: methods of development
The need for a
“Sustainable
development”

Sustainable development
Sustainable
development
is development that
meets the needs of the
present without
compromising the ability
of future generations to
meet their own needs.
During the 2015 United Nations summit in New
York, 193 Member States of the United Nations
signed up to the Sustainable Development Goals
(SDGs), a package for ending hunger,
eliminating extreme poverty, reducing inequality,
tackling climate change and halting the loss of
biodiversity and ecosystems
— all by 2030.
UN’s Sustainable Development Goals
A collection of interlinked
global goals designed to be
a blueprint to achieve a
better and more sustainable
future for all
17 goals
169 Targets
5414 Actions

Examples of firms engaging with SDG

Benefits Example
• Reduce digital inequality.
• TECH4ALL initiative supports disenfranchised populations by increasing the
digital inclusion of persons with disabilities and refugees.
• Move to zero initiative.
• Moving toward zero carbon and zero waste to help protect the future of sports.
• Increase the percentage of recycled materials in their products.
• Provides their famous bricks and promote play in the classroom and other
education partnerships and projects worldwide.
• In 2018, it launched a LEGO wind turbine model containing an instruction
booklet with facts about climate change and wind energy.
• Discovery Channel has teamed up with charity organization, Oceana, to protect
sharks from the cruel trade.
• It affects up to 73 million sharks per year.

The role of businesses in tackling global challenges
Firms have an active role
in solving global issues.
In some cases, they are
involved in creating them.

The three main pillars of
sustainability

Three pillars of sustainability
Three Pillars of Sustainability:
• social
• environmental
• economic
Triple Bottom Line:
• People
• Planet
• Profit
Sustainability framework that
examines a company’s social,
environment, and economic impact
Social
Society
Company

Examples of firms engaging with the triple bottom line

Benefits
• By 2025, Seventh Generation aspires to reach 100% of packaging will be
reusable and reused, recyclable and recycled, or biodegradable and degraded.
• Laundry and dish products have a biobased % of 95% or higher.
• Patagonia does not use any chemicals in their production processes.
• It uses recycled, organic, or environmentally sound materials.
• Build more efficient machines that produce cleaner energy, reduce greenhouse
gas emissions, clean water and cut its use.
• Ecomagination has generated more than $200 billion in revenues from 2005.
• M&S Plan A is a multi-year sustainability transformation plan.
• M&S priority in 2019/20 has been to evolve Plan A to reflect our new operating
model and to embed the programme into the core strategy.

Examples of firms engaging with the triple bottom line
Individual Activity: CASE STUDY
Sustainability and investment decisions: Blackrock
This Photo by Unknown Author is licensed under CC BY-SA
Break Time – 15 minutes
Stakeholder management
and corporate performance

Profitability vs responsibility
Economic point of view:
a firm is an
economic organisation
and, as such,
profitability is
its very purpose
Social point of view:
firms are also
social institutions,
embedded in a social
environment which
represents significant
social responsibilities

Banking industry: the societal role of banks
2008 financial crises
• The economic dependency on banking
systems has been reduced
• new regulations have been installed
• governments have made system changes
Banks can no longer just strive for maximised
shareholder value without significant protest
from governments, regulators, societal
stakeholders and clients.
Source: www.thestreet.com/
Oil & Gas industry: protecting the environment
Deep water horizon oil spill Gulf of Mexico
• The pressure of societal stakeholders has grown.
• 2010 oil considered to be the largest marine oil spill
in the history of the petroleum industry.
Oil companies are facing increased pressure from
environmental groups, NGOs and governments after a
number of accidents and oil spills.
Source www.isfoundation.com
Managing profit / responsibility: creating shared value
Profits involving a social purpose
represent a higher form of capitalism,
one that creates a positive cycle of
company and community prosperity.
Shared value concept moves business
and society beyond trade-offs.
Porter and Kramer – 2011
Creating shared value
• Reconceiving products and
markets
• Redefining productivity in the
value chain
• Enabling local cluster
development
• Self-sustaining purpose and profitability
• Stronger brand equity and marketability
• Increased customer preference and loyalty
• Higher advocacy, retention and
productivity among employees
• Resilience against external business
threats
• Regained credibility among a disillusioned
public
• Enhanced or sustained interest from likeminded shareholders and investors
Ways shared value is achieved
Benefits

Nestlé’s Creating Shared Value
In order to create value for shareholders and the company, the
organisation needs to
create value for the people in the countries where
it is present: the farmers, employees, consumers and the communities
where the firm operates.
Extract devoted to the
Planet from Nestlé’s
2020 Shared value
report

Group activity: Case Study
Balancing profit and responsibility – Patagonia Clothing
This Photo by Unknown Author is licensed under CC BY-SA
Managing sustainability and stakeholders
To stay on the right track
for achieving a
sustainable future for
their business,
management must
prioritise engagement
with those who have the
biggest interest in their
success:
stakeholders
Source: www.activecampaign.com
The power stakeholders can have in an organisation
1990s:
Nike was targeted by
labour activists, campus
organisers and antiglobalisation forces for
allowing its suppliers in
poor countries to abuse
and exploit workers
Nike initially didn’t
take responsibility
of its suppliers
working conditions
1998:
CEO, Phil Knight: “The Nike product
has become synonymous with slave
wages, forced overtime and arbitrary
abuse,” he said. “I truly believe that the
American consumer does not want to
buy products made in abusive
conditions.”

Which stakeholders are the most important?
Mendelow‘s matrix
Stakeholder mapping identifies key
stakeholders in order to prioritise
efforts.
The matrix classifies stakeholders
in relation to:
• the power they hold and
• the extent to which they are likely
to be interested in and attend
actively to a particular strategic
issue.
source: blog.oxfordcollegeofmarketing.com
Which issues are the most critical for stakeholders of
a company? Materiality matrix
The analysis identifies which
issues are the most important of
being addressed:
• What is the potential of each
issue to positively or
negatively impact
organisational growth, cost, or
trust?
• how important is each issue to
stakeholders?
source: Unilever
Governance and
stakeholder alignment

Importance to align governance and stakeholder

Benefits Example
• 2015: Volkswagen cars sold in the United States cheated on its emissions
tests.
• $18 billion fine from the EPA.
• Share value dropped by 30 percent, wiping out over $26 billion in shareholder
value.
• 2018: Britain’s second-largest construction and outsourcing operation, Carillion
went into liquidation
• After banking on income from large contracts which proved much less lucrative
than expected.
• 2001: Enron ends with a spectacular crash and massive bankruptcy.
• Enron did not have any meaningful corporate governance in place.
• They engaged in outright deceptive accounting practices.

Corporate governance chain
Managers and stakeholders are linked together via the governance chain.
Shell’s corporate
governance

The principal-agent model for governance chains
Problems arising from the principal– agent model:
Knowledge imbalances. Agents typically know more
than principals about what can and should be done.
Monitoring limits. It is very difficult for principals to
monitor closely the performance of their agents.
Misaligned incentives. Unless incentives are closely
aligned to principals’ interests, agents are liable to
pursue other objectives that reward them better.
‘Principals’ employ ‘agents’ to act on their behalf, just as the
firm’s owner hire the manager to run the organisation.

Models for corporate governance:
shareholder model
Align a corporation with its stakeholders’ interest versus only shareholders
Management needs to attend to
multiple stakeholders.
Examples:
• banks and employees, may be
formally represented on boards
(investors or unions).
• Germany/Japan, job security
becomes a main corporate
objective.

Group Activity: Case Study
Hilton Hotels and Resorts
This Photo by Unknown Author is licensed under CC BY-SA
Progress in corporate governance, is it enough?
Source: Johnson (2017)
There is encouraging progress towards long-term, multi-stakeholder
governance. However, work still needs to turn it into the new normal for
companies, not just a select group of high performers.
Source: Ernst & Young (2021)
Review of Apply
Activity

Apply Activity Instructions
Discussion Forum (100 words)
1. Why is sustainability a critical element for a firm’s sustainability?
(max 50 words)
2. Why do businesses have an important role in tackling global issues?
(max 50 words)

Assessment Instructions
In the role of a Management Consultant, you are required to provide a short
PowerPoint presentation to the CEO of Tesla on key points of interest and
relevant recommendations to the CEO regarding future sustainable
development.
LO4: Assess and apply suitable frameworks and ideas to formulate and control
sustainability for organisations in a global context.
• Identify, analyse and evaluate the PEOPLE aspect of the three main pillars of
sustainability in relation to Tesla.
• Identify, analyse and evaluate the
PROFIT aspect of the three main pillars of
sustainability in relation to Tesla.
• Identify, analyse and evaluate the
PLANET aspect of the three main pillars of
sustainability in relation to Tesla.
• Please refer to the
Assessment Brief for a detailed breakdown on what
information should be on each slide

Recap, Q&A,
Discussion

Key Takeaways
You should now be able to:
• Recognise the concept of sustainable development
• Analyse the three main pillars of sustainability, profit
people, planet
• Assess the relationship between stakeholder
management and corporate performance
• Evaluate the various governance mechanisms used
to align stakeholder interests

Next Steps
• Review this topic
• Go through the Preparation and Apply part of this week (if
not done yet)
• Go through the Consolidation part of this week
• Go through the Preparation and Apply part of next week
Prepare Task 3 of your Assessment
• See you next week same time!